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Market participants usually seek exposure to global beta which are best achieved usually through large capitalization equities where higher idiosyncratic risk represents a potential source of alpha. This study empirically explored the persistence and drivers of idiosyncratic risk across the S&P 500, CAC 40, FTSE 100, DAX, and Nikkei 225 for a period of 20 years (2004 – 2024). Utilizing a quantitative risk decomposition framework, the analysis revealed a stark dichotomy where the S&P 500 exhibits minimal idiosyncratic risk, functioning as a proxy for global systematic factors. The Nikkei 225 was dominated by idiosyncratic risk which can be attributed to the unique domestic monetary policy. The European counterparts occupied a middle ground, with idiosyncratic risk amplified by sectoral concentrations. The correlation analysis further suggested a deep regional integration within the European markets and a diversification potential with the Japanese equity market. The findings challenged the notion that globalization has harmonized global financial market returns. These findings also demonstrates that idiosyncratic risk remains a significant and potentially compensable component of the concept of international investing, necessitating a strategic shift towards factor aware asset allocation.

Traditional asset pricing models assume rational investors and informational efficiency. However, persistent anomalies, and recurrent financial crises challenge these assumptions. This study synthesizes findings from leading international research to evaluate how cognitive biases shape asset prices and provides a comprehensive review and synthesis of behavioral asset pricing in international financial markets over a period from 2004 to 2024. Evidence from the extensive stock market data, cross-market behavioral heterogeneity and survey-based risk premia consistently demonstrates that behavioral effects are time-varying and regime-dependent. The findings indicate that behavioral heterogeneity intensifies during boom and bubble periods, diminishes during crashes, and generates predictable patterns in returns across asset classes and countries. Overall, the study re-iterates support for a dynamic behavioral asset pricing framework that integrates psychological factors into international financial market analysis.

Herding behaviour has been shown to significantly influence market performance over the years, often leading to mispricing of assets due to asset bubbles. This study aimed to analyse herding behaviour on the Johannesburg Stock Exchange (JSE) before, during and after COVID-19. A cross-sectional absolute deviation (CSAD) model was used to determine the presence of herding during the specified periods, from the 1st of January 2018 to the 31st of January 2024, while causes and implications were explored further to offer a better understanding of herding behaviour. Herding behaviour was detected in all observed periods, which was not anticipated, which raised the need to discuss the policies in place to curb irrational investor behaviour. The evidence suggests that portfolio managers should understand that herding behaviour can cause market movements that are not necessarily rational or based on fundamentals. Instead, the results indicate that prices can be influenced by collective sentiment. As such, portfolio managers can assess the risks associated with blindly following the crowd and formulate strategies to avoid it. Portfolio managers can also educate their clients on the risks associated with herding behaviour to set realistic expectations and prioritise long-term stability over short-term trends.

This research investigates how the overall mood of investors influences the profits of the major commercial banks traded on the JSE. Although behavioural factors are increasingly acknowledged in financial markets, there is very little empirical evidence that investor sentiment has any impact on the South African banking sector, despite this sector being the main driver of financial stability and economic growth. This study investigated whether investor sentiment has a significant impact on bank stock returns in both the short and long term. The research period ranged from September 2008 to March 2025 and used monthly return data. The paper implements the Autoregressive Distributed Lag (ARDL) approach to illustrate immediate and long-term relationships between sentiment, macroeconomic variables, and bank performance. The findings demonstrate that investor sentiment is one of the significant factors influencing bank stock returns, but the effect varies between different banks. Sentiment, on average, tends to have a negative effect on the majority of banks in the long run, which means that in times of extreme optimistimism  are followed by those of overvaluation and subsequent correction. However, one bank revealed a positive return-sentiment relationship which suggests that characteristics unique to a specific bank can have a moderating effect on behavioural factors. The short-run outcomes indicate that bank stock returns are very reactive to changes in sentiment and macroeconomic shocks and at the same time, diagnostic tests for model reliability support these results. The paper contributes to behavioural finance literature by delivering fresh data derived from an emerging market and providing an answer to the problem of bank-level disaggregated analysis that has been neglected. In addition to the theoretical contributions, the results can be turned into actionable insights by investors, policymakers, and portfolio managers who will be reminded of the importance of including sentiment indicators in their bank performance assessment and risk management activities in the South African financial sector.

This paper investigates whether personality traits, affects, and anticipated emotions measured before a stock market simulation explain participants’ trading style. The study relies on a sample of 133 undergraduate students from the University of Mons, Belgium, who participated in a four-hour CAC 40 trading simulation with a virtual portfolio of EUR 100,000. Regressions were estimated on several dimensions of trading style: number of transactions, minutes per order, average transaction size, average cash holdings, and portfolio volatility. The results show that psychological variables explain little of trading frequency or pacing but are informative about the structure of market exposure. Negative affect is associated with higher cash retention, whereas positive anticipated emotions are associated with lower cash holdings. Gender and openness also predict position size, while gender, age, and openness are significant predictors of portfolio volatility. Overall, the findings suggest that psychology explains less how much individuals trade than how they structure their market exposure.

This study provides a contemporary analysis of the dynamic interplay between persistent trends and short-term stochastic movements in international financial markets, challenging the traditional view of an efficient market. Through a quantitative examination of the S&P 500, FTSE 100, Nikkei 225, DAX, and CAC 40 using daily closing prices from 2000 to 2023, the research employs a 50-day SMA to identify trends and a 14-day stochastic oscillator to gauge whether some financial markets are overbought or oversold. The findings reveal distinct, regime-dependent market behaviors across different economies, with strong uptrends in the United States and Germany contrasting with weaker trends in the United Kingdom and France and a downtrend in Japan. The results empirically demonstrate that a trend following strategy, which goes long during uptrends and remains neutral during downtrends, consistently enhances risk adjusted returns and preserves capital compared to a static buy and hold approach. Furthermore, correlation analysis emphasis that effective global diversification requires an understanding of synchronous market regimes, not just holding different assets. The findings of this study suggest that disciplined, regime aware framework, integrating both trend and momentum signals, is essential for robust global asset allocation in today's complex financial landscape making it a noteworthy contribution.

The Johannesburg Stock Exchange (JSE) is considered a cornerstone of the South African economy, with its size-based indices serving as critical benchmarks for passive investment and portfolio construction. Although macroeconomic variables affect stock returns, the existing literature has primarily relied on linear models which yield heterogeneous results and do not allow for the dynamic and changing structure of financial markets. Consequently, this study investigates the nonlinear, regime-dependent effects of key macroeconomic variables such as inflation, money supply, short- and long-term interest rates, GDP, and the real effective exchange rate (REER) on the returns of the JSE Fledgling, Small-Cap, and Mid-Cap indices. Utilizing monthly data from 2002 to 2024, the study employs a two-state Markov Regime-Switching which allows the study to endogenously address the changes in bull and bear market regimes. The most pressing finding is that the Real Effective Exchange Rate (REER) is a consistently positive driver of returns across all market conditions, while the influences of other variables, such as interest rates and GDP growth, are highly dependent on the market regime (bull or bear) and the specific index size. Finally, these findings lead us to conclude that the relationship between macroeconomic fundamentals and stock returns is not a constant phenomenon but rather is fundamentally dependent on the regime, lending strong support for the Adaptive Market Hypothesis. This insight is significant for investors and portfolio managers, underscoring the necessity of adaptive, regime-sensitive strategies for effective risk management and portfolio allocation on the JSE.